Three Boston University professors – James Bessen, Jennifer Ford and Michael Meurer — are writing a provocative law review article using empirical data to quantify the cost of patent trolls. The cost of patent trolls is clear to every retailer that I speak with, but the results of the article are still shocking:

[Patent trolls] are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010.

Id. At 2.   $500,000,000,000 in lost wealth over twenty years, but it is actually worse than it sounds.  The losses are growing; an average of $80 Billion was lost per year over the last four years.  Almost two-thirds of the $500 Billion were lost in the last four years.  Some will no doubt argue that the study overstates the problem, but the authors make a compelling case that it is a levelheaded assessment of the cost of patent troll litigation.  They focus the study upon the impact of troll litigation upon a public company’s share price and find that, controlling for market fluctuations and other anomalies, stock prices take a significant and lasting hit when a troll suit is filed against a company.

The authors also explore whether the $500 Billion is simply a wealth transfer sending the money from the corporate coffers to individual inventors, but they find most of the money is simply lost:

  1. Most of the lost wealth is not transferred to the troll; and
  2. Little of the wealth that is transferred to trolls makes it to the inventors of the patents.

The study also confirms what I suspect most retailers already know.  The vast majority of troll cases, as much as 75%, involve computer and communications patents.  Also, the patents tend to be asserted well after they are issued, once an accused technology has come into widespread use in the marketplace.

The article is very interesting and well worth a read, but I posed the key question in the title:  What does the study mean for retailers?  Here are four key takeaways:

  1. Software Patentability is a Critical Issue. The prevalence of software and computer patents requires a renewed focus upon the patentability of software.  The Supreme Court’s Bilski decision avoided squarely addressing the issues, but retailers must key on it and look for ways to band together to get the issue decided more clearly.
  2. Litigation Cost is Greater than Just Legal Spend. The focus of troll discussions is usually on legal defense costs and the resulting cost of defense settlements.  It would be naïve not to continue focusing upon that, but retailers also need to focus on the harm troll litigation can do to corporate value.  The article focuses upon the harm to stock price, but you should also look at the cost of diverting business and engineering time from advancing the primary corporate goals.  As the article points out, all of these costs make it harder and less cost-effective for companies to innovate.
  3. Shareholder Education. One obvious way to prevent the loss of share value when a troll suit is filed is to educate key shareholders.  Explain troll litigation to them and, to the extent that you can without waiving privilege, explain how you handle the cases and the company’s statistical history with troll matters.  Doing that should help soothe investors and retain more stock value when troll suits are filed.
  4. Trolls are Changing. The article makes clear that the troll business model is changing.  Retailers need to make sure that their troll response plan – which I will be writing about developing next week in honor of National Preparedness Month – keeps pace with the changing face of the patent troll.